Greece submits new economic plan

Greece’s left-wing prime minister Alexis Tsipras will today seek backing for a harsh new austerity package from his party to keep his country in the euro.

Government ministers signed off on the sweeping new measures likely to extend the recession after six years of painful decline less than a week after urging Greeks to reject milder cuts in a referendum.

The proposals, which include pension cuts and tax hikes, were sent to rescue creditors for approval at emergency meetings of European Union leaders and finance ministers over the weekend. The proposed new bailout worth nearly €53.5 billion would be Greece’s third since it lost market access in 2010.

But Mr Tsipras must first get authorisation from parliament in a vote, asking his Syriza party to sign off on the U-turn despite more than 60% of voters opposing more austerity in the July 5 referendum.

The coalition government has 162 seats in the 300-member parliament and pledged backing on a deal from a large section of opposition lawmakers. But failure to deliver votes from his own government would likely topple his coalition.

A prominent dissenter, energy minister Panagiotis Lafazanis, urged the government not to sign a third bailout.

“The choices we have are tough … but the worst, the most humiliating and unbearable choice is an agreement that will surrender, loot and subjugate our people and this country,” he told a business conference.

Greece had voted No in last weekend’s referendum, he said, “and that will not be turned into a humiliating Yes”.
Protesters who had backed a Yes vote returned to the streets yesterday, with several thousand gathering outside parliament.

More rallies, backing and opposing the government, are planned in central Athens today.

Syriza had resisted a new loans-for-austerity deal, arguing the country is too weak to endure it, with a quarter of the population out of work and a growing number living in poverty.

Athens finally issued its proposals late yesterday, just ahead of a deadline set by eurozone lenders – forced to make more concessions after defaulting on repayments to the International Monetary Fund (IMF) and being forced to close its banks to prevent their collapse.

In return for the new package, the government said it would seek debt relief – a notion gaining ground internationally despite reluctance in Germany.

European Council president Donald Tusk said: “The realistic proposal from Greece will have to be matched by an equally realistic proposal on debt sustainability from the creditors. Only then will we have a win-win situation.”

Yesterday, German finance minister Wolfgang Schaeuble also said the possibility of some kind of debt relief would be discussed over coming days.

But in a note of caution, he added: “The room for manoeuvre through debt reprofiling or restructuring is very small.”

Key points in new bailout plan:

Greece has submitted a 13-page set of proposals to its European creditors.
The plan is intended to act as a foundation to free up a new three-year, €53.5 billion bailout package to save the nation from bankruptcy.

Here are the main points of the package that the Greek parliament will debate today.

Budget targets

The Greek government is pledging to stick to primary surplus targets – meaning that the government is earning more in taxes than it is spending – of 1% this year, 2% in 2016, 3% and 3.5% in 2017 and 2018 respectively.

Sales tax reform

The proposals include a slew of tax hikes including a 23% value added tax on restaurants and catering, a reduced 13% tax on basic foodstuffs, energy hotels and water and a so-called “super reduced” rate of 6% on such things as pharmaceuticals, books and theatre – perhaps appropriate for a country that pioneered drama. The new tax levels will kick into gear this October.
Moreover, special tax breaks for the country’s islands – popular tourist magnets – will be scrapped. Only the most remote islands will get to keep the coveted tax breaks.

Fiscal reform

Military spending will be slashed by 100 million euro (£72 million) this year and double that in 2016. Corporate tax will increase from 26% to 28% and farmers will lose preferential tax treatment and fuel subsidies. The government will enact a clamp-down on tax dodgers. The country’s huge shipping industry will also see a tonnage tax hike and the industry’s preferential tax treatments will be phased out. A luxury tax will be extended to cover recreational vessels over five metres (16.4 feet) and the rate will jump from 10% to 13%.

Pension reform

The government is looking at reforms that would bring permanent savings of 0.25% to 0.5% of gross domestic product (GDP) in 2015 and 1% of GDP in 2016 and beyond. Measures aimed at achieving those numbers include discouraging early retirement and standardising the retirement age to 67 by 2022 – except for those performing “arduous jobs” and mothers raising kids with a disability.

Social pensions will be better targeted, while supplementary pension funds will be financed by employees’ own contributions. Perks such as a solidarity fund will be gradually phased out and health contributions for pensioners will jump from 4% to 6% on average. More reforms will kick in to make the pension system more sustainable, including an overhaul of pension contributions for all self-employed.

Authorities will also vet reforms to make sure that they are fair.

Public sector reform

Authorities will shape up public sector wages to ensure that they are on a downward trajectory by 2019 and that they fit “the skill, performance and responsibility” of staff. Perks such as paid leave and travel allowances will be streamlined to conform with EU norms. A plan to make it easier to reassign public sector workers to different posts wherever they are needed will also be introduced. A new strategic plan to fight corruption will be drawn up by the end of this month while new laws will make political party finances more transparent and protect financial crime investigations from political interference.

Tax administration

The government will set up an autonomous tax revenue agency and enact reforms streamline tax collection, track down tax cheats and combat fuel smuggling.

Financial sector

Amendments on insolvency laws will aim to get debtors to pay up loans, while consultants will help on how to deal with bad loans. Steps will also be taken get foreign investors to pour their money into Greek banks.

Product market

The government will open restricted professions such as engineers, notaries and court bailiffs. It will draw up laws aimed at getting rid of red tape and making it easier to get business licenses, while reforming the gas market.

Privatisations

The government will look at selling off state assets and will get the ball rolling on privatising the electricity grid company, regional airports and ports including Pireaus and Thessaloniki.